At 54, I have a $320,000 IRA and will soon be self-employed earning $120,000 a year. How much of that should I save for retirement?

"As a W-2 employee, your employer covers half of your Social Security and Medicare taxes. As a sole proprietor or single-member LLC, you pay the entire amount 15.3% self-employment tax yourself."

"A Solo 401(k) is the right tool. It lets you contribute as both employee and employer. For 2026, the employee deferral limit is $24,500, and at 54 you qualify for the age 50-59 catch-up of $8,000."

"Total potential Solo 401(k) contribution: around $60,000 per year. A SEP-IRA is simpler but limits you to the employer-only contribution of 25% of net self-employment earnings, capped at $72,000 for 2026."

"Based on standard retirement planning projections, $320,000 growing at a 7% average annual return could reach approximately $674,000 in 11 years without new contributions."

Transitioning to self-employment at 54 with $320,000 saved presents unique financial challenges. With an income of $120,000, the self-employment tax significantly impacts savings. A Solo 401(k) allows contributions as both employee and employer, potentially reaching around $60,000 annually. In contrast, a SEP-IRA limits contributions to 25% of net earnings. The existing IRA could grow to approximately $674,000 in 11 years at a 7% return, emphasizing the importance of optimizing retirement savings strategies.

Read at 24/7 Wall St.